The Export-Import Bank of China (Chexim), a Chinese state policy bank, and Sinochem, a large mainland conglomerate, have issued dim sum bonds, kicking off second-quarter issuance.
Chexim is selling three-tranche notes with tenors of 2, 5 and 10 years to fund Renminbi-denominated export credits extended by the issuer and for general purposes, while Sinochem is offering three-year tenor bonds.
The deals kicked off the dim sum bond market in the second quarter, following the $15.5 billion -- nearly half of total 2013 issuance of $33.5 billion-- dim sum bond binge in the first quarter.
However, analysts and bankers do not expect the second-quarter market to be as heated as the first due to continuous CNY weakness in April, China’s economic slowdown, as well as the stance of the country’s central bank to guide the currency weaker until it sees capital inflows easing.
The renminbi has depreciated 3.4% this year, and some bank analysts expect the currency to continue to drop by 2% to 8% by year-end.
“Renminbi depreciation has cast a shadow over the market. And this is going to push issuers to compromise in price to secure enough investor demand,” said a debt capital market banker covering the local currency bond market.
The yield spread between investment-grade bonds and lower-rated bonds will widen, as investors worry about the credit risk of dim sum bonds. Chexim and Sinochem, however, will be less impacted by the concern.
“Larger companies can benefit for their big names, especially state-owned issuers which are supported by the government,” said a Hong Kong-based bond analyst.
Chexim is marketing the 2, 5 and 10 year notes at a guidance of 3.2%, 3.85% and 4.4%, respectively, and the guidance for Sinochem’s dim sum is at 3.8%. The indicative prices are at the same level with prices of the comparables issued earlier this year.
Chexim is rated Aa3 by Moody's, AA- by S&P and A+ by Fitch, while Sinochem is rated A3 by Moody’s, A- by S&P and A- by Fitch.
A HSBC report on May 5 stated that investors may not be anxious about the credit risks given the 2.45-year average duration and the fact that about 70% of Chinese corporate paper came from SOEs and 90% of the rest from investment-grade foreign companies.
The two dim sum deals will be priced as early as Wednesday night.
Bank of China (Hong Kong), Bank of Communications Hong Kong, Barclays, Crédit Agricole CIB, Deutsche Bank, HSBC and Mitsubishi UFJ Securities were on the Chexim deal.
ANZ, Bank of China (Hong Kong), Crédit Agricole CIB, DBS, HSBC, Morgan Stanley and Standard Chartered were on the Sinochem dim sum transaction.
